Friday, 31 December 2010

It seems the tobacco companies knew about about last year's tobacco excise increase. From the financial statements:

Other customs and excise duties were $112m (12.2%) lower than forecast. Tobacco companies stockpiled imported product prior to the excise rate increase in April. This led to an increase in revenue at the end of the last financial year, but has also resulted in reduced revenue this year.

Thursday, 30 December 2010

In 1984, he became a philosophy professor at Canterbury University in Wellington, New Zealand. [emphasis added]

When he launched Arts & Letters Daily, he continued to champion sprightly writing and another of his interests, freedom of information.

Dutton told Salon he hoped the site would prompt everyone to explore fresh ideas and challenge preconceived notions.

Unusual course

"A vegetarian gun-control advocate who opposes capital punishment is fine," he told Salon.com in a 2000 interview. "But what pricks my interest more is the vegetarian anti-capital punishment cowboy who carries three shotguns displayed in the back window of the cab of his truck."

Dutton's book, The Art Instinct: Beauty, Pleasure, and Human Evolution, argues that art appreciation is not a result of education and exposure, but a natural evolutionary adaptation.

He taught an unusual course at the University of Canterbury titled "Darwin's Dangerous Idea" that explores how Darwin challenged conventional thinking and the impact of his ideas on philosophy throughout the 20th century.

He was a passionate defender of public radio and served on the board of public broadcaster Radio New Zealand.

September's earthquake might have moved Christchurch a few feet closer to Wellington, but it's still pretty far away. I'd make jokes about not expecting anyone at the CBC Igloo in Iqaluit to know that, but the rest of the obit is rather nice.

There is no other academic in the whole of New Zealand whose obit would be of this kind of international interest. It would be interesting to see what New Zealand's PBRF would have done with him had he made it through to the 2012 round. My bet: they'd have entirely discounted ALD as it's not peer reviewed (doubtful they'd ever have heard of it), would have given the book about the same weight as a couple of journal articles, given him some points for peer esteem and wound up with a B. Now if he'd given up that silly website and concentrated on getting lots of refereed journal articles in second tier philosophy journals, he just might have gotten an A. I'm glad he ignored PBRF.

I'd spent a bit of time last year arguing that the whole "going Galt" thing was overblown: that there was no evidence of any huge resurgence of interest in Ayn Rand's ideas with the recent economic crisis. Or, at least there was no evidence of it in Google search traffic data.

Now Google's released Ngram: a search tool that checks the relative frequency of different terms found in books scanned by Google, sorted by date. Unfortunately it only goes up through 2008 so we can't fully verify what was in the search traffic. But here's the Ngrams.

Wednesday, 29 December 2010

I'm sitting outside a cafe in Granity on New Zealand's west coast - the spot closest to our rented holiday house from which I can get sufficient cell signal to blog from my phone. Yay Android. But we're cutting the vacation short to head back to Christchurch tomorrow for Denis Dutton's memorial service. Ben's asked me to say a few words on Friday. I'll have a few hours in the car tomorrow to think on that, so long as the kids nap as they ought. But it is something I've been thinking on rather a lot these past few.months. Denis has been a very good friend to us since we got to know each other a couple of years after our arrival in Christchurch - and especially over the last three or four years. I was very surprised when he told me just a few months ago now that he had cancer. We then figured he likely had a couple of years left. Time flies.

I'm going to miss getting the random phone calls of his revelling in his latest triumph - a new translation of his book that was bound even more beautifully than he expected, a gig at TED, a feature interview with John Cleese, me giving him grief for shamelessly linking to the positive reviews of his book on Arts & Letters, him throwing a Forbes op-ed my way that he hadn't time to write. Denis is the one who pointed Greg Lindsay at me for the MPS meetings this year. He was tired in Sydney but gave a great talk.

We were visiting him at hospice on Boxing Day when the big aftershocks hit. Until only a few days before we'd been talking about getting wireless internet set up for him there for his scheduled January visit when Margit would be out to Oz for Ben's wedding. But on Sunday he'd decided that he probably wasn't up for running ALD any more.

Denis was always an optimist, on the side of dynamism and always long on humanity. It's the right side to be on, even when he's not there to cheer us on.

A year ago or so we'd planned on having cigars of protest out on the quad at University when the new antismoking regs came into force. That was put on hold. I think I'll save mine to have outside at the staff club with a good whisky.

A Bollywood zombie movie would be awesome. I'd suggested it here, though I'm sure the idea has occurred to others (see below). Since then, nobody's been able to find me an Indian zombie movie - the genre seems not to exist.

My first hypothesis: cremation. High cremation rates mean few cemeteries and few fears of zombies. But Japan has even higher cremation rates and does have a few zombie movies.

My second hypothesis: religious politics in India. Islam forbids cremation, or at least that's what's suggested by a quick web search. So the potential pool of Indian zombies is going to be heavily Muslim. If there are already reasonable religious tensions between the two groups, a zombie Bollywood movie where presumably Hindu heroes would go around being menaced by, and killing, predominantly Muslim zombies might not be the best idea.

But that hypothesis fails too. Somehow India has managed to produce the local public good of not making a zombie movie? Yeah right. It might explain why a big studio with political connections wouldn't have put out a zombie movie, but it doesn't explain why one doesn't get financed by some Hindu nationalist organization. In fact, we might expect a low budget zombie movie then to be more rather than less likely.

I hope it's nothing as ploddingly dull as different local mythologies meaning different superstitions and a non-universalisation of the Frankenstein fear. But be careful::

Western horror films happily mine religious imagery in the knowledge that the audience will be largely secular; in India and Pakistan it would be dangerous to make such an assumption, and so film-makers are prone to borrow western myths rather than explore their own.

My read of the linked article is that successful Indian horror movies have been those that have played with those Western horror myths that are consonant with Indian myths: ghost and vampire stories.

Horror films as a genre seem very thin market in India. A Bollywood-style zombie movie would then be very thin market indeed. If it's tough to do a low budget Bollywood film - Baumol's cost disease on the troupes of singers and dancers - then those films will target mainstream Indian cinema, not niche products. And a Bollywood zombie movie would be a niche of a niche: you kinda need the mainstreamish version of zombie movies before you can do the Shawn of the Dead treatment. My ideal Bollywood zombie movie would be genuinely terrifying, with dance intervals to relieve tension rather than as comic relief, but the Shawn of the Dead version would be much easier to pull off.

So it's again the curse of high fixed costs mixed with idiosyncratic preferences. If there were a few million Erics around, we could have Bollywood zombie film festivals on Seasteads. But there would be other problems.

Tuesday, 28 December 2010

A behavior can be adaptive without being an inherited biological adaptation, of course. But because starvation occurred with such regularity in our ancestral past, and because the starving mind predictably relaxes its cannibalistic proscriptions, and because eating other people restores energy and sustains lives, and because the behavior is universal and proceeds algorithmically (we eat dead strangers first, then dead relatives, then live slaves, then foreigners, and so on down the ladder to kith and kin), there is reason to believe—for Petrinovich, at least—that anthropophagy is an evolved behavior. The taboo against cannibalism is useful in times of health and prosperity; groups wouldn't survive very long if members were eating one another up. Yet starvation has a way of releasing the cannibal within.

In fact, starvation cannibalism may have been so prevalent in the ancestral past that it literally changed our DNA. Modern human populations appear to contain specific genetic adaptations designed to combat cannibalistic viruses.

Monday, 27 December 2010

If you spend time in the dodgier parts of the interwebs, you'll see arguments that we should replace GDP statistics with gross national happiness statistics and that government should be targeting happiness rather than GDP growth.

We economists are utilitarians; we tend to like GDP growth because it correlates with increased happiness. Sure, you'll see odd things like results showing low incremental happiness gains with increased income beyond a certain threshold, but think about how the happiness numbers are collected: by self-reported happiness on a scale from zero to ten. You start running into right truncation issues pretty quickly. So the guy who answered "seven" when asked how happy he was a decade ago while a student without much money may well answer "seven" when asked again today because he can still imagine being even happier - who can't? Alternatively, imagine if we stopped measuring folks' income directly and started asking, as one Twitterer [update: Tim Harford, thanks for the reminder, LemmusLemmus] suggested a while back, how rich people felt on a scale from zero to ten: "Oh, I just got paid today, so I'll say a 7."

But suppose that we take the happiness directive seriously. What policy implications flow from this kind of work:

Here we explore the extent to which baseline happiness is influenced by genetic variation. Using data from Add Health, we employ a twin study design to show that genetic variation explains about 33% of the variation in happiness, and that the influence of genes varies by gender (women 26%, men 39%) and tends to rise with age. We also present evidence that variation in a specific gene predicts happiness. Individuals with a transcriptionally more efficient version of the serotonin transporter gene (SLC6A4) are significantly more likely to report higher levels of life satisfaction; having one or two alleles of the more efficient type raises the average likelihood of being very satisfied with one's life by 8.5% and 17.3%, respectively. Finally, using data from an independent source (the Framingham Heart Study) we show that a linked single nucleotide polymorphism (rs2020933) in the SLC6A4 gene also predicts life satisfaction. These results are the first to identify a specific gene that may be associated with baseline levels of happiness.

The policy conclusion seems obvious to me: provide a baby subsidy to folks with the transcriptionally efficient alleles. Make the magnitudes big enough to matter. Within a few generations, we have an expectationally happier population. Look again at the magnitude of the differences reported: they're big relative to the effects of other shocks, and they're baseline rather than transitory. If what we care about is national happiness, it's hard to think of anything that would be more effective. Now, I wouldn't advocate the policy. But neither would I advocate the other policies that get pushed by the happy people.

The excellent James Fowler is one of the authors of the paper and sensibly avoids policy conclusions. He instead makes even more interesting suggestions about using genes as instruments in disentangling endogeneity problems.

Sunday, 26 December 2010

Finally, in a brand new paper, Philip Brenner at the University of Michigan's Institute for Social Research compared self-reported attendance at religious services with "time-use" interviews in the United States, Canada, the Netherlands, Germany, France, Norway, Finland, Slovenia, Italy, Spain, Austria, Ireland, and Great Britain. Brenner looked at nearly 500 studies over four decades, involving nearly a million respondents.
Brenner found that the United States and Canada were outliers—not in religious attendance, but in overreporting religious attendance. Americans attended services about as often as Italians and Slovenians and slightly more than Brits and Germans. The significant difference between the two North American countries and other industrialized nations was the enormous gap between poll responses and time-use studies in those two countries.
Why do Americans and Canadians feel the need to overreport their religious attendance? You could say that religiosity for Americans is tied to their identity in a way that it is not for the Germans, the French, and the British. But that only restates the mystery. Why is religiosity tied to American identity?

That just pushes the problem back a level though: why did the US wind up in that equilibrium while other places didn't? Why might you have to fake religion to get by in places in the States, but not elsewhere? Candidate explanations:

Strong Tiebout sorting. Atheists moved from the small towns to the cities. But would you have to fake religion to get by in small town New Zealand or Europe? I doubt it, but haven't data.

For historical reasons, more social services were traditionally provided by religious organizations and religious-affiliated friendly societies. That set a norm of faking religion to get along. Though the welfare state and regulation replaced/displaced a lot of that since the 1920s, it's hard to break a preference falsification norm. The first ones to break it would be the weird high demanders, and that would dissuade rather than encourage others from breaking the information cascade.

There's cultural divergence between the small towns and big cities. Signalling atheism suggests allegiance with a bundle of other hostile attitudes. If you share the other values of the community but are atheist, and if the folks most likely to reveal atheism are the ones who don't share the community's other values, then you'd sooner falsify on the one margin than be thought to be defecting on the others.

If all goes well with the University's payroll system, I will have a pecuniary interest to declare as of 30 December. A consortium of Australasian alcohol folks have engaged Matt Burgess and me to do some work on the social costs of alcohol. In particular, we've been asked to evaluate the methods used in recent work in Australia by Collins and Lapsley and to compare them with standard mainstream economic methods. In short: work similar to that which we did, unpaid, in examining the BERL report last year. We did not solicit this work. But when we were approached, it sounded interesting. Especially since rather a few folks dismissed our earlier entirely unfunded work as having been industry paid.

Because I worry a lot about problems of one-sided skepticism, I wanted to ensure not only that any work I did would be entirely independent but also that it could be seen to be so. Consequently, this work is being undertaken as part of a consulting contract administered by the University of Canterbury, approved of by the powers that be here at the University. I drafted all of the provisions regarding academic freedom in the contract; they were happy with it. The contract guarantees our full academic independence, maintains our ownership of the intellectual property produced, guarantees our ability to publish the work as we like, and reserves to us the right to comment publicly on the work without restriction. I can't imagine what else we could have added to the contract to guarantee academic freedom. An honest application of standard economic method is what's most valuable to all parties concerned.

Let the howls of "oh, but they're paid by industry" begin. The most reasonable form of such critique would be that the folks in the alcohol industry liked the kind of work we did last year and wanted more of it, and take this as a negative endorsement of anything I do in the area. I could similarly be critiqued for being associated with the Mont Pelerin Society by folks who'd take that negatively. The least reasonable form of critique is that the fact of payment influenced our work. The only influence it's had is that I'm working on this instead of on something else, and that I can afford to hire a few research assistants to help with the background literature review (there are lots of other alcohol social cost studies out there).

If you want to worry about funding, please avoid one-sided skepticism. I've made assertions above, and you might think I'm lying. But do consider that the social cost studies showing big numbers on the costs of alcohol - those didn't get produced for free. They tended to be funded by Ministries of Health. And those contracts, from what I've heard, have more strings on them than mine does when it comes to academic freedom.

Saturday, 25 December 2010

Four in 10 Americans, slightly fewer today than in years past, believe God created humans in their present form about 10,000 years ago.

They've been asking the question since 1982 and it's been pretty steady at 45%, so in some sense this is good news! (I'm saying this under the completely unsupported belief that it's better for people to believe truths than falsehoods.)

One way to think of this is that, for the overwhelming majority of people, a personal belief in young-earth creationism (or whatever you want to call it) is costless. Or, to put it another way, the discomfort involved in holding a belief that contradicts everything you were taught in school is greater than the discomfort involved in holding a belief that seems to contradict your religious values (keeping in mind that, even among those who report attending church seldom or never, a quarter of these people agree that "God created humans in their present form about 10,000 years ago").

I especially like the link between Caplan's theory of rational irrationality and religion; Caplan's presenting his theory at GMU back in 1999 is what broke what deism remained in me.

Caplan argues that when a belief is personally costless, folks will hold whatever belief feels good. Since no individual voter is decisive or has any chance of changing any economic outcome, they can hold severely mistaken views about how the economy works. In aggregate, this does harm. But no individual has incentive to change their beliefs. If any one of them were to be put into a decisive environment, like having to trade a futures contract on unemployment conditional on changes in the minimum wage, they'd take some time to reassess their position. But in a consequence-free environment, why bother? And especially when social pressure towards conformity with existing prejudices might make disagreement costly.

The parallels to my own take on religion were pretty obvious. Was it a belief that felt good? Check. Did I adjust the constraints of the belief when faced with changes in the costs of those beliefs? Check. Did I have any evidence at all that the belief was true? Nope.

How could I fault the faith-based beliefs of others about economics if I didn't at least try for rationality where I could among my own beliefs?

Friday, 24 December 2010

Really? Nobody? I can think of a couple of explanations, pretty easily testable. But we'll get to that in a minute. BoingBoing points to Big Think:

The wage premium paid to lesbian workers is a bit of a mystery. Sure, lesbian women are better-educated on average, are more likely to be white, live predominantly in cities, have fewer children, and are significantly more likely to be a professional. But even when you control for these differences, the wage premium is still on the order of 6%.

It is fascinating when the data starts looking like the majority is being discriminated against. Is it wage discrimination, though, or is there an economic argument for why lesbians are getting paid more?

Well, a possible explanation has to do with the division of labor in a heterosexual union.

...

This theory is cleverly tested in a paper which calculates the wage premium paid to lesbians in two distinct groups—those who were once in a heterosexual marriage and those have never been married.* The assumption made is reasonable; lesbian women who were once married to men (about 44% of the lesbians in the sample) presumably have in the past had the expectation that they would have a marriage partner with a higher income. The never-married women might also have had this expectation, but it is much more likely that, on average, women in that group expected to be in a relationship with another woman with a comparable income.

Does the evidence support the theory that the wage premium can be explained by greater investment in more market-oriented skills by lesbian women? Well the premium does not disappear completely for the subset of previously married women but is reduced by about 17%, providing some support for the idea. At 5.2% though, the once-married lesbian premium is still high enough that I don’t think we can consider the case closed.

Here's my candidate explanations.

First, and most importantly, maternity risk. If an employer expects a lesbian employee to be less likely to take maternity leave, and if maternity leave imposes costs on an employer, then the employer will be more likely to hire and to promote the lesbian over the straight woman. What evidence do we have? Petit's field experiment showing that maternity risk is responsible for a fair bit of women's lower average salaries.

How could this be tested in the data presumably available in the original study? Test whether the wage gap between lesbian and straight women is larger for younger women than for post-menopausal women. That will confound with age cohort effects, but there may be a way around it: use state insurance mandates on assisted reproduction, or state policies with respect to same-sex adoption. If some states require that insurers cover fertility treatments as part of an employer's insurance package and others don't, or if some states make it easier for lesbians to adopt kids, then we'd expect the wage gap between lesbians and straights to be smallest in those states that make it easiest for lesbians to have kids.

Second, testosterone and negotiation strategies. Women, on average, are less aggressive in wage negotiations. If testosterone correlates with aggressiveness in salary negotiations, and some evidence suggests higher than average testosterone levels among lesbians as compared to heterosexual women (though that evidence is contested), then we've another candidate explanation.

I'd put money on the maternity risk variable. I'd only put money on the negotiations one at decent odds.

But really, if correcting for the observables reduces the wage gap between lesbians and heterosexual women from around 40% [the paper cites average hourly wages of $18.70 for lesbians and $13.34 for cohabiting non-lesbian females] to around 5%, odds are pretty high that there are a bunch of unobservables also correlated with job performance that aren't captured in the wage regression.

More broadly: if you think it's implausible that employers love lesbians so much that they pay them extra for no good reason, then shouldn't you expect the same when looking at the male-female pay gap?

Blogging will continue over the holidays, but by queued posts. Daily goodness arrives at 7 am Christchurch time. I'm especially fond of the queued piece on Bollywood zombie movies, or the lack thereof. When will that one turn up? Stay tuned.

Thursday, 23 December 2010

Joe Bennett's wonderful rant against Christmas, and discussion of a very poorly thought out plan to hitchhike from Moose Jaw to Regina mid-winter, reminds me of Joel Waldfogel's piece on the deadweight costs of Christmas.

Waldfogel reckoned that folks like the gifts they receive less than what people spend on them. The difference is a deadweight cost. Summing up, he found the deadweight costs of Christmas were on the order of 10%-33% of the deadweight costs of income taxation.

The literature has moved on a bit since then. Some sentimentalists figure that Christmas is a net gain - that people like the gifts they get by more than what was spent on the gifts. But I've not seen anybody pay proper attention to the transaction costs involved. Weigh up the time, effort and anxiety that weigh down on the giver trying to decide what to purchase. That has to be worth something. Then the time, effort, hassle, inconvenience and irritation of the Christmas shopping experience. Folks who plan ahead can get it all done online and avoid some of those costs. But each day's delay brings positive probability of coming up with some idea of what would be a more appropriate gift. And if you order something too early, there's greater chance of forgetting that you'd bought it (if you hide it well) or its being found by the would-be recipient (if you don't).

Then, weigh the congestion costs. Pity the guy who just honestly needed to buy a blender because his old one broke on the 24rd of December.

Festivus (see the video above) clearly dominates. Mainly because there's no inefficient gift giving. But also because of the airing of grievances and feats of strength. Bryan was onto something when he posted on the hypersensitivity awareness training: it is increasingly difficult to find ways of expressing displeasure with people without it leading to resentment and, potentially, retaliation. Imagine replacing the norm of gift-giving with a one-day free pass for the airing of all grievances. Anyone failing to air a sufficiently weighty grievance would be subject to as much disapprobation as someone who currently gives an inappropriate Christmas gift, and anyone bearing a grudge the next day would be as stigmatized as a re-gifter. I suppose a world in which this were possible would be one in which it wouldn't be necessary: the impossibility of a desirable Festivian airing of grievances. Imperfect worlds.

Susan has invited some folks round to our place tonight for an early Christmas dinner. But I think she forgot that today is Festivus. The aluminum pole is coming out tonight!

Wednesday, 22 December 2010

You've always had the option to opt out of internet pornography. Lots of internet service providers advertise provision of specifically filtered services to keep porn out. Some ISPs provide nothing but filtered service. But you have to opt out: the default plans don't censor your pipe.

So most folks don't opt out unless they want to bind themselves against self-control problems, they want to keep the kids out of that stuff, or they want to make a symbolic statement against pornography and in favour of the ISPs that provide filtered service.

The biggest broadband providers, including BT, Virgin Media and TalkTalk, are being called to a meeting next month by Ed Vaizey, the communications minister, and will be asked to change how pornography gets into homes.
Instead of using parental controls to stop access to pornography - so-called "opting out" - the tap will be turned off at source. Adults will then have to "opt in."

...

Claire Perry, the Tory MP for Devizes and a keen lobbyist for more restrictions, said: "Unless we show leadership, the internet industry is not going to self-regulate. The minister has said he will get the ISPs together and say, 'Either you clean out your stables or we are going to do it for you'."

"There is this very uneasy sense for parents of children that we do not have to tolerate this Wild West approach. We are not coming at this from an anti-porn perspective. We just want to make sure our children aren't stumbling across things we don't want them to see."

More wonderful libertarian "nudge" paternalism from the Brits. Those who enjoy the stuff would still get it, but only if they explicitly sign up for it and presumably get put onto some government list of known pornography viewers which will presumably get out via Wikileaks within a few years. Then the journos could have fun looking at the lists of which prominent people have signed up for the uncensored stream and folks can snicker about their neighbours' viewing habits.

The big difference between the two default rules is that the opt out rules allow folks with "deviant" tastes to pool with those who are indifferent, while opt-in only selects those whose preference intensity is strong enough to be happy about being on the list. Nothing is currently signaled by failure to opt out but opting-in would say rather a lot: you're either a consumer of the product, or a very strong civil libertarian.

I'm going to bet that this doesn't wind up being implemented. Here's Hansard of the debate. The Minister seemed pretty lukewarm on pushing through regulatory changes; I'll guess that the latest reports are bargaining position for either getting ISPs to do more to push subsidized Net Nanny variants to folks who want them, or for concessions on other issues altogether. Dick Puddlecote is livid (rightly so) but I'd be shorting the iPredict contract at prices higher than $0.35. It's pretty disgusting that a coalition that includes the Lib Dems would be even making noises in this direction.

Tuesday, 21 December 2010

Learning from the success of sensitivity training, I suggest we combat hypersensitivity with Hypersensitivity Training Workshops. Small groups of students or co-workers, under the guidance of a certified Hypersensitivity Coordinator, must come together to explore the dangers of hypersensitivity. This evil will always be with us, but by raising awareness we can hopefully make the problem more manageable.

Hypersensitivity Training is still in its infancy. At the moment, I'm the world's only certified Hypersensitivity Training Coordinator, and even my experience is limited. But I here propose the following exercises to start a dialog about proper program design.

Exercise #1: The Wall of Hypersensitivity. Find a partner. You start talking. His job is to take visceral offense at everything you say. After five minutes, reverse roles. Then we have a class discussion about how your partner's hypersensitivity made you feel.

Exercise #2: In General. Write down five groups that you identify with, then find a partner and swap lists. Take turns going down the list telling each other, "In general, group X is Y." Y can be anything you sincerely believe.

Exercise #3: An Awkward Moment. Stand before the group and tells a story about a time you inadvertently gave offense. After each story, the group chants, "It was no big deal!"

It continues, awesomely of course.

I especially love the wall of hypersensitivity.

"How the hell could I know he was a hostage"...one of the greatest Kids in the Hall lines ever.... Seeing the episode again, Kevin McDonald is more objectionable at the party than I had remembered. I don't know if that's because memory is hazy and it's funnier to remember it as a guy who's entirely innocent, or because Susan has forced me to improve my standards. If the latter, colleagues here can console themselves in that I used to be worse.

Monday, 20 December 2010

But there’s another side to the Superman story, which reveals another equally destructive aspect of copyright. Superman’s popularity led to a boom in ‘superhero’ comics, with dozens of new characters introduced by every publisher in the business. One in particular, the red-costumed Captain Marvel (created by C C Beck and Bill Parker for Fawcett Comics), became so popular it eventually overtook even Superman in sales. Captain Marvel was witty and clever, with distinctive and playful art, and helped push the young American comics industry to new heights of quality and sophistication. But National, searching for a way to crush its biggest competitor, sued Fawcett for copyright infringement.

The case dragged on for years before Fawcett finally gave up, settling out of court and promising to shut down the Captain Marvel line. Many comics fans remember the end of Captain Marvel as the day their favourite hero was finally slain – not by alien invaders or supernatural powers – but by copyright lawyers. Looking back today, National’s lawsuit looks weak indeed. But in the battle between Superman and Captain Marvel, the better comic lost.

In 2004 Nigel Cox’s highly acclaimed novel Tarzan Presley looked set to make a big splash – not only here in New Zealand, but around the world. It was nominated for awards, had rave reviews and was selling like crazy. But then Cox’s publisher, Victoria University Press (VUP), received a threatening letter from none other than Edgar Rice Burroughs (ERB Inc.), the private company that oversees Edgar Rice Burroughs’ literary estate, including Tarzan. Of course, by the time Cox’s novel was published, Burroughs had been dead for more than 50 years (the first Tarzan story came out in 1912), which in most of the world puts his work in the public domain. But not in America, where corporations like Disney have repeatedly – and successfully – lobbied congress to extend copyright terms.

So even though Tarzan has been a part of our shared mythologies, daydreams and fantasies for nearly 100 years, shaping stories and art around the world, he’s still – as far as ERB Inc. is concerned – the company’s exclusive private property. And Nigel Cox was trespassing. VUP’s lawyers advised that ERB Inc.’s case was weak (at least in New Zealand), but fighting it in court would cost a fortune. There was nothing VUP could do. ERB Inc. insisted that Tarzan Presley never be reprinted or sold overseas. Cox’s masterpiece slipped out of sight, becoming a great lost treasure of New Zealand literature, buried in the depths of the copyright jungle.

I don't agree with Horrocks' generalized anti-corporate stance, but I think he's right on copyright and the commons. As I wrote in April:

Peter sensibly argues that the creative innovator deserves to enjoy the fruits of his creation - and I'd agree - but some portion of those returns come from the artist having free access to the existing body of common culture. Again, on moral grounds rather than economic, how can it be right that Walt Disney Productions and Tim Burton get to take the Alice story from what's now the commons and enjoy greater protection applied to their movie than Charles Dodgson ever enjoyed from his original book? I rather liked Tim Burton's remixing of the Alice story into something wonderful and new, and that remix wouldn't exist if Burton and Disney couldn't earn a return from it. But Walt Disney will lobby for the rest of its corporate life for the extension of the term and scope of copyright such that some other re-mix artist a hundred years from now won't be able to mash up scenes from this version of Alice with something currently unimaginable to make a new work every bit as creative as what Tim Burton achieved. That future work will fail to be created, and unnecessarily so.

Sunday, 19 December 2010

I had nothing to do with this, other than taking the picture outside the campus library Thursday afternoon. Nor do I condone graffiti or vandalism of university property. And neither would I ever endorse or encourage it.

But this did make me smile yesterday (though this would perhaps have been more appropriate).

I rather doubt that this will lead to any substantial student protests - folks in Guy Fawkes garb and stogies on the quad, for example. Smoker numbers in the designated smoking areas always seemed rather low. And a good fraction of those smokers are international students who might be reticent to get involved in student protest. And while I wonder about the elasticity of smoker versus non-smoker enrollment to university smoking policies, I'd be surprised if it were terribly high in either case.

Saturday, 18 December 2010

The predictable result of banning legal trade in organs. Instead of having legitimate markets with organs of verifiable provenance, we have this:

Citing evidence from witnesses, the draft report says the KLA network maintained bases to keep scores of captives, select them for the suitability of organ harvesting and later killed some of them to extract organs from mid-1999 to mid-2000.

"In the months directly after the declared end of the Kosovo conflict in June 1999, members and affiliates of the KLA purportedly delivered scores of persons they had abducted into secret detention on Albanian territory," Marty's report said.

Evidence suggested, Marty added, that the organisers used safe locations in Kukes on the Kosovo border, the Mat region further south, and at Fushe-Kruje near the international airport. The location in Fushe-Kruje was specially built.

"It constituted a state-of-the-art reception centre for the organised crime of organ trafficking. It was styled as a makeshift operating clinic, and it was the site at which some of the captives held by KLA members and affiliates had their kidneys removed against their will," Marty's report said.

Age, sex, state of health and ethnicity, with mostly Serbs targeted, determined the selection.

"Some of these captives are said to have pleaded with their captors to be spared the fate of being 'chopped into pieces'," Marty said, citing source testimonies his team had obtained.

"The testimonies on which we based our findings spoke credibly and consistently of a methodology by which all of the captives were killed, usually by a gunshot to the head, before being operated on to remove one or more of their organs."

Then they shipped them to overseas clinics, part of an international black market in organ-trafficking for transplants.

And I'll guess that a majority of folks reading the story would see it as a reason not to allow trade in organs rather than one of the reasons we really ought to consider it.

Friday, 17 December 2010

Pew (HT: Economist) has compiled surveys of American public opinion from 1936-1937. Some results, keeping in mind that the samples then would have been skewed toward white males as respondents. I'm stealing their images: go to the Pew site for full results.

I'd noted that youth unemployment during the current recession, relative to adult unemployment in prior recessions, seemed really high. I'd argued that it looked likely due to the elimination of the differential youth minimum wage.

Matt Nolan points me to this piece by The Economist showing that New Zealand's current youth unemployment rates are an outlier relative to other countries as well.

The farther north a country is, measured on the perpendicular from the "four times as high" line, the worse youth unemployment is relative to adult. It looks like only Sweden and Luxembourg have worse youth unemployment outcomes relative to adult rates.

It would be awfully interesting if anybody had compiled a dataset of OECD countries' youth minimum wage policies. The multiple's correlate with the ratio of youth to adult minimum wage, coupled perhaps with some measure of the bindingness of the minimum wage, would be worth investigating.

From 1 January 2011 the University of Canterbury will be a smokefree campus, ensuring we all benefit by having a healthier place to study, work and live. All University buildings and grounds (including halls of residence, Ilam fields, regional campuses and field stations) are part of the smokefree campus.

In doing this, the University is embracing a wider vision of integrating health into the culture, structures and processes of the University by eliminating Environmental Tobacco Smoke (ETS) exposure for all staff, students and visitors. The University is actively assisting in the protection and improvement of the health of the community.

In addition, becoming a smokefree campus is a positive, substantial and sustainable step towards reducing the University’s environmental impact.

I am curious what environmental goal is furthered by eliminating outdoor smoking on campus. I'm not sure that changing the total quantity of tobacco smoked on campus, even by a few orders of magnitude, would have any effect on any of New Zealand's broader environmental quality measures: greenhouse gas emissions, nighttime smog in winter, carbon monoxide concentrations. The only one that seems potentially plausible would be a reduction in cigarette butts reaching the Avon River, but even there it's ambiguous: less smoking, but a greater proportion of butts being disposed of via storm drains when the ash trays are disappeared.

I'm also rather curious about what other policies might flow from the University's "embracing a wider vision of integrating health into the culture, structures and processes of the University". Linking tuition rates to deviance from ideal BMI seems a good start: taxing unhealthy outcomes is more efficient than taxing inputs where individuals have highly variable and unobservable production functions for healthy outcomes. Further, we ought ban air travel to the United States because of the cancer risks involved with the new backscatter scanners.

1. Rationale
The University has adopted a comprehensive smoke-free policy which is based on the following general assumptions:
...
1.4 That successful implementation and on-going compliance of the Policy will require everyone to respond in a courteous and responsible manner.

Rather than say anything discourteous or irresponsible about this, the best of all possible policies at the best of all possible universities, I'll instead note my utter dismay with ACT leader Rodney Hide's support for legislation that would ban the retail display of tobacco in New Zealand. I've heard claims that this was part of a logroll: that it will help ACT secure other policy considerations down the line. I don't believe it. If I had to bet, I'd guess Hide actually supports the legislation as part of the generalized health kick he started a couple of years ago, consumer freedom be damned. Maybe we'll someday see evidence to the contrary in the form of a policy bone being thrown to ACT. But I've bet against it.

The contract above pays $1 if any ACT private member's bill makes it through first reading. That's not the only way ACT can influence policy, but it ought be correlated with their overall chances of influencing policy. And there's zero movement in the contract - not even any trades - since a few days before the vote. Glad I'm not a smoker - not even the purportedly liberal party here will stand up for them.

Meanwhile, the Brits have started fighting back against this kind of nonsense; they're helped by that smoking regs are being imposed from Brussels. If NZ's regulations were being foisted on us by trade agreements with Oz rather than by the Maori Party, I wonder if we'd have had more than 3 MPs vote against them.

Using the publicly published data from the police's one-year taser trial, a team from the University of Auckland investigated the police's use of tasers, with a specific eye on people suffering from mental illness. The results were disturbing. People suffering from mental illness were twice as likely to be tasered than criminals.

Isn't that what we'd expect though? If it's the case that a sane criminal will be way more likely to run away, or to submit, than to charge the police officer while a person with mental illness may be more likely to attack the officer, or even if police expect that to be the case, then the stats aren't surprising.

It's not hard to imagine the decision function: "His eyes looked crazy, like he was going to attack me. I warned him about the taser. When he started to run for me, I tased him."

This part is more worrying though:

Police have also used tasers inside mental health facilities, explicitly threatening to torture patients in order to "induce compliance".

I'd also have thought they'd have better technologies for purpose inside institutional care facilities than tasers.

But that wasn't the only disturbing thing the study found.

Maori (the indigenous people of New Zealand) and Pacific (people with Pacific Island ethnicities) were over-represented among subjects where ethnicity was recorded (127 of 141: missing data=14). Twenty-eight percent of the sample was Maori and 25% Pacific compared with 14.6% Maori and 6.9% Pacific in the national population (Statistics New Zealand, 2007). Europeans were underrepresented with 31% of all subjects compared to the New Zealand European population of 67.6%.

So, if you're brown, the police will pull a taser on you. If you're white, they won't. It looks like racism is alive and well in our police force.

I'd love to see some adjustment here for overall arrest rates. Wouldn't the more relevant comparison be the prison population rates? If somewhere around 44% of the prison population is Maori, is it that surprising that Maori are also overrepresented in the taser stats?

I'm no Judith Collins; hit the "police state" tab. But this one seems overblown.

The stats are on Taser deployment where the target is painted with the laser. Only 13.5% of the sample actually were hit with the Taser's electrical charge: 19 individual cases.

Eight of the nineteen discharges involved mental health emergencies; half of those also involved a health professional. There's no way that sample sizes this small, for actual Taser discharges, tell you much.

Here's their description of some use of Tasers in mental illness events:

Two mental health emergencies occurred in inpatient mental health services. In one incident the person was reported to be “extremely aggressive and violent” and damaging property. In the other report, the person had threatened staff with a pair of scissors. In both situations the police were called by staff and the person was compliant following laser “painting” with the Taser. Another two incidents reported occurred in community residential facilities housing mentally ill persons. In each of these incidents the individuals were reported as having bothmental health problems and being under the inﬂuence of substances. One incident took place in a boarding house in which the person was “aggressive and threatening” to residents. The subject was reported to be compliant following laser “painting”. In the other residential facility described as a “half way house for mental health patients” the person was reported as violent and was damaging property. The Taser was discharged on this individual.

I wouldn't be second-guessing the police at the scene on any of these. If the police were able to get a deranged person who was threatening staff with scissors to stand down simply by pointing the Taser at him, that really doesn't seem like any kind of bad thing.

Thursday, 16 December 2010

Christchurch City Council nudges us to recycle. And we comply. How do they do it? We get three bins for collection. A large yellow bin into which we can deposit recyclable materials, a smaller red bin for general rubbish, and a smaller green bin for compostable materials. Because we generally have zero excess capacity in the red bin (one in diapers, one hopefully out of them in a month or so), we shunt lots of stuff to the other bins. If the capacity constraint were too binding, we'd contract for alternative service: private contractors also provide bins that, for a fee, are collected regularly for disposal. Under the prior regime, we also had a mild nudge: Council fully subsidized the collection of recyclable rubbish but charged $1 per bag for collection of waste destined for landfill. The net per tonne cost to council of disposing of recyclable waste was roughly twice as much as the net cost of landfill disposal: I'd reckoned it around $40 per tonne net for landfill and about $80 net for recyclables.

Under the new system, none of the disposal methods incur any marginal charge for households and the per tonne costs of all three forms of disposal roughly match at around $300 per tonne. The cost of landfill disposal has increased with the loss of offsetting revenue; the cost of disposing of recyclables has increased presumably with collapses in the value of recyclable materials and increased use of the big yellow bins. And total costs have to go up when running two trucks past each residence every week rather than just one.

Under the old system, I recycled because refraining from recycling was a public good: I would reduce costs to the council but increase costs to me by not using the small old recycling bins. Now, Council should be roughly indifferent which bin I use because their costs don't vary hugely across the three disposal methods. They get angry if you put rubbish in the compost or recyclable bins, but nobody worries much about having inspectors check that you're not sneaking tin cans into your landfill waste bin.

Citing the British model, Cleveland, Ohio, is taking a giant step toward a similar scheme of compulsory recycling. In 2011 some 25,000 households will be required to use recycling bins fitted with radio-frequency identification tags (RFIDs)—tiny computer chips that can remotely provide information such as the weight of the bin’s contents and that allow passing garbage trucks to verify their presence. If a household does not put its recycle bin out on the curb, an inspector could check its garbage for improperly discarded recyclables and fine the scofflaws $100. Moreover, if a bin is put out in a tardy manner or left out too long, the household could be fined. Cleveland plans to implement the system citywide within six years.

Extreme recycling programs are nothing new, even in American cities. In San Francisco recycling and composting are mandatory; trash is sorted into three different bins with compliance enforced through fines. New York City has a similar program.

And there's the shove.

Cleveland is particularly important, however, because of its size. Cash-starved local governments will be watching to see if an American city as big as Cleveland can use RFID bins to increase revenues. The revenues would flow from three basic sources: a trash-collection fee that could be increased, as in Alexandria; the imposition of fines; and the profit, if any, from selling recyclables. The last source should not be dismissed. Recycling programs are not generally cost-efficient, but much of the reason is that collections need to be cleaned and re-sorted at their destination.

If households can be forced to assume these labor-intensive tasks, then selling recyclables—especially such goods as aluminum cans—is more likely to be profitable. (Perversely, the demand for volume recycling may hit the poor the hardest; in the wake of recession, it is becoming increasingly common for people to hoard their aluminum cans in order to turn them in for cash.)

I tend to think subsidized recycling programmes are mostly nonsense: instead, charge households the cost of disposing of their waste with some small free allotment to discourage poor folks from using the nearest ditch as alternative. If it's profitable that any of the trash be collected for recycling, it'll get done by the private sector. Any recycling that's then done efficiently accounts for all of the costs of recycling, including the private costs of sorting and cleaning waste to make it suitable for recycling. But checking folks' landfill-destined waste for recyclables, fining them if they don't use their recycling bins, and mandating that they scrub out old cans before putting them in the recycle bins seems a form of forced labour.

I hope they at least allow folks to hire private contractors to take bins of unsorted waste for disposal.

Wednesday, 15 December 2010

Karl at Modeled Behaviour says that Peter Orszag's flip from OMB to Citigroup is about what we expect when high level public sector salaries are too low.

One thing the low pay of senior public officials allows for is a pump-and-jump. Even in the most noble of circumstances smart folks will notice that they can get to the front of the line pretty fast in the low competition public sector, build an impressive resume and then jump ship to the private sector to make a load of cash.

Less noble would involve actively selling the benefits of one’s position to the highest bidder. What would stop people from doing this? The fear that they would be fired and thus loose out on a lucrative salary. However, with no lucrative salary there is little incentive not to do this.

I do hope that economically oriented folks aren’t suggesting that we use moral suasion to control government corruption. People respond to incentives. If you don’t want them to sell you out then you have to pay them more.

But the only way this works is if public salaries are no less than the relevant private alternative. If the bundle of connections and institutional knowledge embedded in a high ranking official is worth more to folks in the private sector than in the public, we're going to have problems. At best, we'd delay folks jumping ship for a few years: lots of these appointees are dumped whenever there's a change in administration. Their value to the private sector then is less than it would be as a mid-term jump, but the problem isn't much changed.

The only way I can see higher pay being a solution to the problem is if much of it comes as a bond that pays out if, after some period of time, the official hasn't flipped to work for somebody he was regulating while in office; the bond would have to be big enough to outweigh the official's value to the private sector. That seems unlikely.

We can also build a pretty reasonable efficiency case for allowing these guys to jump to the private sector. Suppose that the regulatory barriers facing firms are exogenous and largely silly. A official bringing to the private sector knowledge of how to best avoid those costs brings real value. The main worry is if the barriers are endogenous or if the private sector reward is endogenous to diversions made by the official to private agents.

First best is to reduce the value of these guys to the private sector by having fewer private sector profits be contingent on intimate knowledge of political processes.

In my opinion, the seeming inevitability of Orszag-like migrations points to a potentially fatal tension within the progressive strand of liberal thought. Progressives laudably seek to oppose injustice by deploying government power as a countervailing force against the imagined opressive and exploitative tendencies of market institutions. Yet it seems that time and again market institutions find ways to use the government's regulatory and insurer-of-last-resort functions as countervailing forces against their competitors and, in the end, against the very public these functions were meant to protect.

We are constantly exploited by the tools meant to foil our exploitation. For a progressive to acknowledge as much is tantamount to abandoning progressivism. So it's no surprise that progressives would rather worry over trivialities such as campaign finance reform than dwell on the paradoxes of political power. But it really isn't the Citizens United decision that's about to make Peter Orszag a minor Midas. It's the vast power of a handful of Washington players, with whom Mr Orszag has become relatively intimate, to make or destroy great fortunes more or less at whim. Well-connected wonks can get rich on Wall Street only because Washington power is now so unconstrained. Washington is so unconstrained in no small part because progressives and New Dealers and Keynesians and neo-cons and neo-liberals for various good and bad reasons wanted it that way. So, what is to be done? Summon a self-bottling genie-bottling genie?

The classically liberal answer is to make government less powerful. The monstrous offspring of entangled markets and states can be defeated only by the most thorough possible separation. But public self-protection through market-state divorce can work only if libertarians are right that unfettered markets are not by nature unstable, that they do not lead to opressive concentrations of power, that we would do better without a central bank, and so on. Most of us don't believe that. Until more of us do, we're not going far in that direction. And maybe that's just as well. Maybe it's true that markets hum along smoothly only with relatively active government intervention and it's also true that relatively active government intervention is eventually inevitably co-opted, exacerbating rather than mitigating capitalism's injustices. Perhaps the best we can hope ever to achieve is a fleeting state of grace when fundamentally unstable forces are temporarily held in balance by an evanescent combination of complementary cultural currents. This is increasingly my fear: that there is no principled alternative to muddling through; that every ideologue's op-ed is wrong, except the ones serendipitously right. But muddle we must.

"Of course New Zealand workers will never be able to compete on cost with China but our quality of work is second to none," Rail and Maritime Transport Union general secretary Wayne Butson said.

"Rail workers who negotiate in good faith for their terms and conditions at KiwiRail are now effectively being told that their wages are the main barrier to New Zealand getting its own rail manufacturing work."

In May, KiwiRail decided it would not bid to build $500m worth of new electric trains for Auckland, a project that was estimated would have created up 1270 jobs and added up to $250m to gross domestic product.

"What needs to change is KiwiRail's tendering rules, and this change needs to come from Parliament, to make it clear for crown entities like KiwiRail that buying local must always be the first option where possible," Mr Butson said.

I'd put no more than a ten percent chance that Key caves and puts local purchase requirements on state-owned enterprises -- unless Sir Roger puts up a private member's bill affirming that the Government will not interfere in SOE buying decisions. In that case, Key's chances of doing something stupid increase by rather a lot.

Friday, 10 December 2010

Calling all YouPorn watchers! Two California men, David Pitner and Jared Reagan, have filed a class-action lawsuit over the site’s practice of “history sniffing,” or checking out other porn websites that visitors have been to through exploiting a Javascript security flaw.

I probably have this wrong, but I think US class action would let Pitner and Reagan claim to act on behalf of anybody who is potentially in the class who doesn't opt out - which they could get out of basic web stats data on overall traffic - then settle for legal costs and coupons for members of the class. If this works out for Pitner and Reagan, anybody who's been damaged by YouPorn's actions would have to notify Pitner and Reagan's law firm that they're viewers of pornography who want a coupon (presumably a week's free access to some pay site), while the law firm gets to keep whatever it charges as legal costs.

Ok, hands up you YouPorn viewers who would provide evidence to the law firm that you're a member of the aggrieved class? Anybody? Didn't think so.

Thursday, 9 December 2010

Back in 1995, I attended an IHS seminar for graduate students. We heard some lectures, practiced our public speaking, and did mock interviews. The last activity was pretty traumatic. It's hard for a second-year grad student to role-play someone who's wrapping up his dissertation.

Part of the process was writing up a mock c.v. - which led to a moment I still remember. One of the students wrote his GRE scores on his c.v. During the denouement, the mock interviewers raked him over the coals:

Good advice, no doubt. But why is it good advice? As usual, the signaling model sheds a lot of light. If the average candidate who puts his GRE scores on his c.v. is professionally clueless even given impressive scores, it's a bad idea to include them. So only professionally clueless candidates do so, reinforcing the equilibrium.

I got exactly the same raking at the same IHS seminar, albeit five or six years later. If I recall correctly, I'd used Robin Hanson's CV as model. Now, his scores are instead on his personal page. So I'm not sure if my memory is wrong, or if Robin's taken the signal.

Wednesday, 8 December 2010

I know Brad DeLong outranks me by... ok, I'm starting to think about problems when dividing by zero. But when I teach micro theory, I draw a really sharp line between market failures (defined relative to the first welfare theorem) and things that folks might just not like about market outcomes. So if we think it's not fair that the result of markets is that some people are poor, that doesn't get to count as a market failure. It's a failure to achieve certain distributional outcomes that may be viewed as desirable by some; it can be a failure to maximize particular social welfare functions other than the default one implied by efficiency. But it's no more a market failure than that Eric isn't a billionaire (as much as Eric would like to be one). If we care about "some people might be poor" and want to solve that, that's when we bring in the second welfare theorem and suggest that we try to fix that problem with redistribution, if it's a problem. But it's not a market failure; it's just a (potentially) undesirable outcome of markets. If we're on the contract curve, it can't be a market failure. And "some people are poor" doesn't push us off the contract curve; the on-diagonal corners of the Edgeworth box are just as Pareto efficient as every other point on the curve.

First, the market will go wrong if the wealth distribution is wrong. The market judges value by willingness to pay, and the rich are much more willing to pay them the poor, and those without wealth or income have no willingness to pay at all. If your wealth and income are zero, then the market literally does not care whether you live or die--it is of no interest to it at all.

Well, it might go wrong relative to Brad's SWF that worries a lot about poor people. But what makes Brad's "not wrong" point on the contract curve any better than mine?* You have to point to something outside of economics to make the case for one point over another, barring the point that emerges as outcome of voluntary trade from folks' initial endowments so long as those endowments are also the result of prior voluntary trade. That point on the contract curve gets slight privilege as moves away from there in the real world will encounter leaky bucket problems if we can't run the transfers of endowments without incentive effects.

I'm not saying that we shouldn't care about the poor, or that there might not be good reasons for wanting redistribution to get to a different point on the contract curve (of a likely somewhat smaller Edgeworth Box). But I'd not say that markets have "gone wrong" if we wind up at some point on the contract curve that isn't my favorite one.

*For my favorite point on the Edgeworth Box, draw it as follows. In the bottom left hand corner, write "Eric". In the top right hand corner write "Everyone Else". Label the horizontal and vertical axes as being two composite commodities that Eric views as goods: horizontal can be "All the good things that begin with the letter B", vertical can be "All the good things that do not begin with the letter B". Draw a contract curve stretching from bottom left to top right. Draw some indifference curves too, if you like, noting what the labeling of the axes implies about the shapes of the curves. Write in a nice title for the box too. Then, put a great big dot on the top right hand corner that says "Markets haven't gone wrong". For all other points on the contract curve, write "Markets went kinda wrong". Put a small dot somewhere close to the bottom left hand corner, on the contract curve, labeled "Brad thinks markets went right (but they didn't). For all points off the contract curve, write "Markets went really wrong - Pareto inferior solutions".

Tuesday, 7 December 2010

This simple institutional arrangement has a huge number of advantages as societal mechanism for planning and coordinating the production and distribution of scarce, rival, excludable commodities.

It solves the problem of production--what commodities we should try to make more of. Individuals look forward into the future and recognize that others will be willing to pay them high prices for commodities they greatly desire. That gives individuals an incentive to figure out how to make more of those scarce, rival, excludable commodities that are scarcest.

It solves the problem of economizing--of how to get people to economize on their own consumption and not hog too great a share of society's total resources for themselves. Because they have to pay the owners the prices the owners ask, their eyes may be bigger than their stomachs but their wallets generally will not be.

It solves the problem of distribution--of determining who is going to get to use newly-produced commodities. The owner has an incentive to choose the person willing to pay the highest price--and the person willing to pay the highest price is, in some sense, the person who values it the most, to whom it is scarcest.

Moreover, it solves the problem of coordination: As long as market prices are free to move to equalize quantities supplied and demanded, there does not need to be any huge centralized computer bureaucracy keeping track of everything and making sure that plans add up. The market will coordinate itself.

And it solves the problem of information: In a market economy with commodities with owners, decision-making is pushed out to the periphery of society where people already know what is going on. You don't need any huge centralized computer bureaucracy collecting and processing information--and where people do discover that there are things that they don't know but need to learn, why knowledge of something and that somebody else would like to learn it is also a commodity and those who know those two facts are its owners.

It is hard to imagine a simpler institutional framework--owners and prices--that could solve those five problems so very well.

What is the second most important thing for you come one student remember? It is how stringent the requirements for any form of "market efficiency" are: how many ways a market economy can go wrong and go badly wrong. I count seven ways that market economies can and do go badly wrong:

...

Whenever the system falls into any one of these seven arenas of psychological, behavioral, or institutional myopia and market failure, the market will go wrong. A good government will put its thumb on the scale in order to offset all of these seven forms of market failure. A great government will have foresight and take care to structure political-economic institutions to make these seven arenas of myopia and market failure as small as possible.

I've a few minor quibbles. I'll leave those for later. Here are the two big problems.

First, DeLong missed the third lesson - the necessary correlate of the second. Governments screw up too. Maybe he wanted us to take it as read for folks who read his blog through the Bush administration.

Second, even if a market "goes wrong", we're still only evaluating things relative to a blackboard ideal of perfect markets. So long as we know that that's what we're doing, fine. But lots of folks will leave Principles level econ with the lesson that any kind of market failure effectively means "anything goes".

Those two together mean that we really have to emphasize comparative institutional analysis. Otherwise we fall too quickly into the Nirvana Fallacy. As Kling put it:

At the University of Chicago, economists lean to the right of the economics profession. They are known for saying, in effect, "Markets work well. Use the market."

At MIT and other bastions of mainstream economics, most economists are to the left of center but to the right of the academic community as a whole. These economists are known for saying, in effect, "Markets fail. Use government."

Masonomics says, "Markets fail. Use markets."

Somewhere along the way, mainstream economics became hung up on the concept of a perfect market and an optimal allocation of resources. The conditions necessary for a perfect market are absurdly demanding. Everything in the economy must be transparent. Managers must have perfect information about worker productivity and consumers must have perfect information about product quality. There can be nothing that gives an advantage to a firm with a large market share. There cannot be any benefits or costs of any market activity that spill over beyond that market.

The argument between Chicago and MIT seems to be over whether perfect markets are a "good approximation" or a "bad approximation" to reality. Masonomics goes along with the MIT view that perfect markets are a bad approximation to reality. But we do not look to government as a "solution" to imperfect markets.

Masonomics sees market failure as a motivation for entrepreneurship. As an example of market failure, let us use a classic case described by a Nobel Laureate, which is that the seller of a used car knows more about the condition of the car than the buyer. Masonomics predicts that entrepreneurs will try to address this problem. In fact, there are a number of entrepreneurial solutions. Buyers can obtain vehicle history reports. Sellers can offer warranties. Firms such as Carmax undertake professional inspections and stake their reputation on the quality of the cars that they sell.

Masonomics worries much more about government failure than market failure. Governments do not face competitive pressure. They are immune from the "creative destruction" of entrepreneurial innovation. In the market, ineffective firms go out of business. In government, ineffective programs develop powerful constituent groups with a stake in their perpetuation.

Sure, without market failures, things could work better. But it's not like everything falls apart as soon as one of the conditions for the first welfare theorem breaks. We don't live in a vacuum, but 9.8 meters per second squared remains a useful approximation. And besides, we'd all suffocate in a vacuum.

Monday, 6 December 2010

I wonder how much deferred maintenance will wind up being covered by EQC and insurers.

When the EQC inspectors visited our place, they noted a cracked window. That one had been cracked for rather a while (an old stained glass piece, so reluctant to mess with it), but the one next to it was new. So we reported the one as new and the other as pre-existing.

Lyttelton Port Co says it is still working to determine its insurance claim following the September earthquake, despite media reports the claim could be between $50 million and $200 million.

It did not yet have a clear view on the value of the claim, the company said today.

Damage to the port was extensive, and the company was working closely with its insurers to measure the damage to the assets, and to decide the appropriate next steps for reinstatement.

It had insurance cover for asset replacement to current standards, along with business interruption insurance, it said.

The largest shareholder in the Port is the City Council. You might think that, at the margin, the Council prefers that reasonable dividends be paid in the short term to the retirees who've bought the other bits of stock than that money be invested in maintenance. And so maintenance could well have been left to one side for rather a while. I hope the insurers are good at parsing out the difference between damage due to deferred maintenance and damage due to the earthquake.

Town will look a fair bit tidier in 18 months' time than it did six months ago...

Sunday, 5 December 2010

I have no clue whether DoC regulations were the binding constraint here - the mine was under some reasonably large mountains. I'd be pretty reluctant to blame the regs absent pretty strong evidence that the mining company had been pushing for open cast. And even then, I'd still be a more than a bit reluctant to pin it on DoC. Suppose it had been a private land owner who only allowed mine access under similar restrictive conditions, and the mine owner agreed. Would we blame the land owner for putting restrictions on use of his land? I'd hope not.

Peter Wittall has sinceargued that topography made open cast an unlikely choice regardless of DoC constraints; barring evidence to the contrary, I believe him.

But other DoC constraints seem likely to have affected mine design. They used a long access tunnel rather than an above ground road to preserve the above-ground environment in the park; that made it harder for folks to get in and out. And the mining company may have delayed plans for more ventilation shafts due to the presence of blue ducks in the area. From Wednesday's Christchurch Press:

A second ventilation shaft was being considered for the Pike River coalmine, the Department of Conservation (DOC) says.

However, a formal application had not been made, DOC spokesman Rory Newsam said.

‘‘Next year, if everything had gone to plan to expand the mine further forward, they would have created a second ventilation shaft,’’ he said.

Pike River Coal chief executive Peter Whittall said there were no definite plans for another ventilation shaft, although it was considered.

A newly installed fan was enough to provide ventilation for the ‘‘foreseeable future’’.

Another option, he said, was to drive a tunnel into a nearby valley, which would have allowed other access and ventilation points.

Unite Union national secretary Matt McCarten said there was discussion about the ventilation shaft, but the idea was dropped when an endangered blue duck was found in the area.

However, Green MP Kevin Hague, of Greymouth, said yesterday that claims about the ventilation shaft being vetoed because of a blue duck and because of conservation concerns ‘‘clearly had no basis in fact’’.

Fran O'Sullivan reports that much of the construction had to work around some pretty serious DoC constraints that prevented Pike River from taking bore samples along its tunnel route.

But the story also noted that engineers had no drill hole information when costing and planning the road. The company had drilled the 2.5km mine tunnel through an area it had virtually no information about because getting access for bore holes was too hard.

Said Whittall: "Our knowledge and our predictability was hampered by being in the DoC estate."

Then there is the disaster response. Cabinet ministers Gerry Brownlee and Judith Collins attacked an Australian journalist who asked some insensitive - but valid - questions.

But Brownlee and Collins have vested interests. The Economic Development Minister has been a strong advocate for "surgical" mining in national parks where Pike River has been held up as the gold standard example, and, Collins rushed in to defend police management [EC: why even bother saying this? We can take it as read that Police Minister Collins will rush in to defend the police, no matter what.] of the disaster "rescue" without even seeming to query why there was no credible plan, let alone technological resources, in place to deal with a methane explosion.

The upcoming inquiry cannot shirk this key question of whether it was appropriate to have police leading the effort rather than mining personnel.

Let's take this to first principles. Suppose that the land were privately owned, that the private land owner provided a set of conditions to Pike River for access to his land that were identical to those offered by DoC (whatever those were in fact), and that some other mining technique would have been optimal from Pike River's perspective. Suppose further that the private land owner would be willing to accept $10 million as compensation for the harms done to his property under Pike's optimal mining strategy. If Pike River is more than $10 million better off by using the preferred technology, it pays out the land owner. We get the optimal result: if the gains to the mine outweigh the losses to the land owner, the mine compensates the land owner and uses its preferred mining technique. If the harms to the land owner would be greater than the benefits to the mine, the mine has to use a less preferred technique but such use remains optimal. The costs of paying off the land owner are no different than other real mining costs.

Next, suppose that the land owner has very very strong preferences: he demands near infinite monetary compensation for any variance from his preferred conservation plan. Sure, if he weren't the land owner, he wouldn't have been willing to pay Pike an infinite amount to shift to a pro-environment mining technique, but willingness to accept can differ from willingness to pay. It's a real choice for the land owner. When the mining company steps up and offers a cheque for $10 million dollars if the land owner changes his mind, the land owner has to think pretty hard about whether he really has preferences that are that strong. If it's a real preference, fair enough. If the land owner refuses $10 million for access to his land under conditions he doesn't like, that's a revealed real preference. And we have to respect preferences of this sort even if they're inconvenient. Just like we'd have to accept the manufacturer's demanded price for a piece of safety equipment if we wanted to make the purchase.

A bureau like DoC faces somewhat different constraints though. First, the decision makers tend to be selected from high-demanders on environmental quality; further, they make decisions with other people's money. If the mine had offered to buy DoC an alternative bundle of land in exchange for being able to use its preferred mining technique, it's kinda hard to say what would happen. Maybe the DoC official would be a pragmatist who wanted to minimize some overall environmental loss function, and losing a few acres at one spot could be worth gaining more acres, or more important acres, somewhere else. Or maybe the DoC official would have really intense preferences against any damage being done to the particular bit of land which he was assigned to oversee. But unlike the private landowner, he doesn't really face the same real choice that forces a sharpening of thought. He doesn't own the land and doesn't receive the compensation for any of the harms done. Further, his personal conservation-money tradeoff doesn't necessarily bear much resemblance to that of voters, if we can even figure out what would be meant by voter preferences.

In short, if the private landowner sets conditions for land use and the mining company can't sufficiently compensate the landowner to make him change his mind, it's efficient that the mining company follow the landowner's wishes. But it's harder to make that efficiency case where the landowner is a government bureau. It can be done, but I don't generally buy it.

We would no more blame the private landowner for forcing a riskier technology than we would blame the manufacturers of mining equipment for that the safest equipment is more expensive, or at least we oughtn't. But we could blame a bureau for making a poor choice. @LewStoddart notes that we have greater right of recourse to decisions made by bureaus: the mine couldn't do much if somebody with crazily intense preferences owned the land, but it could appeal a DoC decision up through the chain of command. But we have to recall that it's efficient to respect the land-owner's preferences in that case, even if we think he's nuts. It's a revealed preference. DoC doesn't bear the consequences of its decisions in quite the same way. And even in the absence of any kind of agency problems up the chain from bureaucrat to bureau to the Minister to Cabinet to Parliament to Voters, there's still the rather large problem of voters' expressed preferences bearing little necessary relationship to the outcomes they'd actually prefer in a decisive environment.

I'd still be very reluctant to blame DoC prior to having some decent evidence. Folks like to find somebody to blame for disasters. The eventual Royal Commission review of the disaster will make for interesting reading if its terms of reference are broad enough. It would be nice to know whether Pike River delayed plans for a second ventilation shafts because it reckoned the DoC process to unlikely to to work out or because the second ventilation shaft wouldn't have made sense until after the mine were further developed. It would also be nice for the report to lay out explicitly the DoC constraints that were in place and the environmental value of the habitat that would otherwise have been affected. Then folks can judge for themselves whether DoC's tradeoffs were reasonable, hopefully keeping in mind

the most the constraints did was raise the ex ante probability of an accident, not cause one; and,

the trade-offs DoC made may well have been close to what voters would have claimed to have wanted ex ante.

Oh: I would probably have my "Canadian citizen but NZ Permanent Resident" status revoked by one side or the other if I didn't point the Kiwis to Rita MacNeil's songs in tribute to miners. The "Men of the Deep" chorus joins in about half-way through.